Overall deal activity fell sharply in 2023, but opportunities for private equity investors exist. Industry segments such as technology and professional services, showed promise while others, including energy and healthcare, beat expectations. Emerging artificial intelligence advancements drove activity in the technology sector, while middle-market and strategic transactions, such as carve-outs and add-ons, continued to flourish, the report said.

Last year's demise of Silicon Valley Bank – a bank which, as its name implies, was closely aligned with the venture capital world – Signature Bank and First Republic happened as lenders were hit by rising interest rates. This squeezed some private market sectors such as private equity buyouts and VC. More than a decade of ultra-low interest rates post-2008 sent a flood of money into private markets because of their presumed higher yields that compensated for less liquidity. That process may have stalled: Asset managers such as Northern Trust have told this publication that they see the ever-increasing inflow into the alternatives space reaching a peak.

Despite prolonged macro challenges, technology continues to be a key area of focus for private equity dealmaking. As the year came to an end, there were reasons to be optimistic. While technology deals declined 18 per cent from 2022, smaller deals showed an upward trend with 368 deals completed in the fourth quarter of 2023, representing an increase of 43.2 per cent, compared to the previous quarter and a growth of 9.8 per cent compared to the fourth quarter of 2022, the report shows.

Trends In 2024
Looking at the private equity outlook in 2024, the Cherry Bekaert report said that a  rising exit market will help revitalize M&A and fundraising activity for private equity. It predicts the market is well-positioned for increased transaction volume in 2024.

As the AI development race rapidly advances, private equity will continue to invest in mature AI and machine learning companies.

Banks holding large real estate portfolios will continue to face loan defaults; predominantly regional banks will be forced to consolidate at a time when commercial property sectors such as offices are hit by the hybrid working model that accelerated during the pandemic.

As inflation cools, the report said it expects the US Federal Reserve will cut interest rates in 2024. While this will alleviate some borrowers' pain, the report does not expect a return to low rates that drove record M&A activity in 2021.

Finally, the report said more fund managers will demand attention to topics such as carbon footprint, diversity of portfolio board members and other ESG goals. Carried interest – the share of profits from a private equity, venture capital or hedge fund earned by the fund's general partner – will probably resurface as a point of contention as domestic tax policies invariably come into play in an election year.